Nissan's Green Leaf Runs On Red Ink

The following is an excerpt of a report my team at Lux Research put together on Nissan's new electric car the Leaf. Turns out it might not be so green for its bottom line.

Nissan recently announced the U.S. pricing for its all-electric vehicle (EV), the Leaf: $32, 780 before incentives, or $25,280 after a $7,500 federal tax credit. Notably, Nissan decided not to lease the battery separately, like Nissan Renault is doing with Better Place in Israel (see the August 5, 2009 LRPJ--client registration required). Instead, it will offer the entire vehicle, including the battery for $349 per month for 36 months after an initial payment of $1,999.

Will red ink flow from this green car?

In January, Nissan selected AeroVironment to provide chargers that will fully charge the Leaf’s 24 kWh pack in eight hours with a connection to a 220 V power line.

According to the Wall Street Journal, the Leaf will sell for ¥3.76 million ($40,700) in Japan, or ¥2.99 million ($31,600) after incentives. For comparison, the Toyota Prius hybrid electric vehicle (HEV) starts at $22,800 in the U.S. and about ¥2.05 million ($21,700) in Japan.

One way to view this information is that the Leaf will be competitive with the Prius when it goes on sale in select markets in the U.S. in December. After the federal tax credit, the Leaf’s invoice price is less than $3,000 above the Prius’; and in some states, prospective purchasers get additional state tax incentives (California, one of the most progressive states, offers $5,000).

However, apart from price, the Leaf faces additional challenges that the Prius does not. First, a director-level executive from a major California utility emphasized that before a would-be EV buyer takes possession of the vehicle he or she has just purchased, there is a 20- to 60-day (more likely 60-day) waiting period to allow the utility and the city to ensure the grid can handle the additional load (see the February 3, 2010 LRPJ-- client registration required).

Second, unlike the Prius, EV owners have to overcome the range anxiety of owning a vehicle with a 100-mile range without the benefit of a widespread municipal charging infrastructure. Finally, while Nissan hasn’t released information on the Leaf’s cargo/passenger space, its hefty 24 kWh battery pack certainly will take up a lot more room than the 1.3 kWh pack of the Prius, even after accounting for the higher energy density of Li-ion compared to NiMH.

Even if the Leaf does sell successfully, some question remains whether or not Nissan will actually make money on its new EV. Our most current estimates have pack costs over $920/kWh today. That means the 24 kWh Leaf pack most likely costs over $22,000 today, which would imply that Nissan (or its battery partner NEC) is losing money on every vehicle Nissan sells for $32,780. While we see pack prices dropping to just over $700/kWh by 2015, even at these prices the Leaf packs will still account for over half of the total price of the vehicles.

Unless Nissan and its battery partner NEC have unlocked the magic Li-ion formula that allows them to manufacture batteries at half the cost of their competitors, Nissan/NEC is almost certainly taking a loss on every Leaf it sells in the U.S., in order to encourage EV adoption and unseat Toyota/Panasonic as the greenest auto-making team. While this strategy might make Nissan the market leader in EVs and boost NEC’s battery sales, it may impose a big financial hit in the process if the EV market fails to develop quickly--as we have argued (see the report "Unplugging the Hype around Electric Vehicles").